Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is currently set up as a full-time child care facility for children between the ages of 12 months and 6 years. Cindy is trying to determine whether the center should expand its facilities to incorporate a newborn care room for infants between the ages of 6 weeks and 12 months. The necessary space already exists. An investment of $24,830 would be needed, however, to purchase cribs, high chairs, etc. The equipment purchased for the room would have a 5-year useful life with zero salvage value.
The newborn nursery would be staffed to handle 12 infants on a full-time basis. The parents of each infant would be charged $207 weekly, and the facility would operate 52 weeks of the year. Staffing the nursery would require two full-time specialists and five part-time assistants at an annual cost of $102,400. Food, diapers, and other miscellaneous supplies are expected to total $12,100 annually.
Determine annual net income and net cash flow for the new nursery.
| Annual Net Income |
|
$ |
| Annual Cash Flow |
|
$ |
Annual Rate of Return$
Cash Payback Period (2 decimal Places)
Assuming that Wichita can borrow the money needed for expansion at 10%, compute the net present value of the new room. $